please give answer for 1,2,and 3 Robert Campbell and Carol Morris are senior vice-presidents of the Mutual of Chicago InsuranceCompany. They are co-directors of the company's pension fund management division, with Campbellhaving responsibility for fixed income securities (primarily bonds) and Morris being responsible forequity investments. A major new client, the California League of Cities, has requested that Mutual ofChicago present an investment seminar to the mayors of the represented cities. Campbell and Morris,who will make the actual presentation, have asked you to help them by answering the followingquestions.6. What are the key features of a bond?7.What is the value of a 1-year, $1,000 par value bond with a 10% annual coupon if its required rate of returnis 10%? What is the value of a similar 10-year bond?8. (1)What would be the value of the bond described in Q7 if, just after it had been issued, the expectedinflation rate rose by three percentage points, causing investors to require a 13% return? Is the securitynow a discount bond or a premium bond?(2) What would happen to the bond's value if inflation fell, and re declined to 7%? Would it now be apremium bond or a discount bond?(3) What would happen to the value of the 10-year bond over time if the required rate of return remained at(i) 13% or (ii) remained at 7%?9. (1) What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for$887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tellyou about the relationship between ra and the bond's coupon rate?(2) What is the current yield, the capital gains yield, and the total return in each case in the precedingquestion?10. Suppose that the bond described in Q9 is callable in 5 years at a call price equal to $1,090. What is theyield to call (YTC) on the bond if its market value is $887? What is the YTC on the same bond if its currentmarket price is $1,134.20?11. What is interest rate price risk? Which bond in Q7 has more interest rate price risk, the one-year bond orthe 10-year bond?12. What is interest reinvestment rate risk? Which bond in Q7 has more interest rate reinvestment rate risk, In an effort to better understand how her investments are affected by market factors, MichelleDelatorre, the professional tennis player introduced in Integrative Problem 3-2 in Chapter 3, has posedsome questions about yields and interest rates that she wants answered. Your boss at Balik and Kieferhas asked you to answer the following questions for Ms. Delatorre.1. Ms. Delatorre mentioned that she purchased a stock one year ago for $250 per share, and that the stockhas a current market value equal to $240. She knows she received a dividend payment equal to $25, butshe doesn't know what rate of return she earned on her investment. Help Ms. Delatorre by showing herhow to compute the rate of return on her investment.2. What do you call the price that a borrower must pay for debt capital? What is the price of equity capital?What are the four fundamental factors that affect the cost of money, or the general level of interest rates, inthe economy?3. Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturityrisk premium (MRP). Which of these premiums is included when determining the interest rate on (1)short-term U.S. Treasury securities, (2) long-term U.S. Treasury securities, (3) short-term corporatesecurities, and (4) long-term corporate securities? Explain how the premiums would vary over time andamong the different securities.4. What is the term structure of interest rates? What is a yield curve? At any given time, how would the yieldcurve facing a given company such as IBM or Microsoft compare with the yield curve for U.S. Treasurysecurities? Draw a graph to illustrate your answer.5. Several theories have been advanced to explain the shape of the yield curve. The three major ones are themarket segmentation theory, the liquidity preference theory, and the expectations theory. Briefly describeeach of these theories. Do economists regard one as being "true"?

Question

please give answer for 1,2,and 3 Robert Campbell and Carol Morris are senior vice-presidents of the Mutual of Chicago InsuranceCompany. They are co-directors of the company's pension fund management division, with Campbellhaving responsibility for fixed income securities (primarily bonds) and Morris being responsible forequity investments. A major new client, the California League of Cities, has requested that Mutual ofChicago present an investment seminar to the mayors of the represented cities. Campbell and Morris,who will make the actual presentation, have asked you to help them by answering the followingquestions.6. What are the key features of a bond?7.What is the value of a 1-year, $1,000 par value bond with a 10% annual coupon if its required rate of returnis 10%? What is the value of a similar 10-year bond?8. (1)What would be the value of the bond described in Q7 if, just after it had been issued, the expectedinflation rate rose by three percentage points, causing investors to require a 13% return? Is the securitynow a discount bond or a premium bond?(2) What would happen to the bond's value if inflation fell, and re declined to 7%? Would it now be apremium bond or a discount bond?(3) What would happen to the value of the 10-year bond over time if the required rate of return remained at(i) 13% or (ii) remained at 7%?9. (1) What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for$887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tellyou about the relationship between ra and the bond's coupon rate?(2) What is the current yield, the capital gains yield, and the total return in each case in the precedingquestion?10. Suppose that the bond described in Q9 is callable in 5 years at a call price equal to $1,090. What is theyield to call (YTC) on the bond if its market value is $887? What is the YTC on the same bond if its currentmarket price is $1,134.20?11. What is interest rate price risk? Which bond in Q7 has more interest rate price risk, the one-year bond orthe 10-year bond?12. What is interest reinvestment rate risk? Which bond in Q7 has more interest rate reinvestment rate risk, In an effort to better understand how her investments are affected by market factors, MichelleDelatorre, the professional tennis player introduced in Integrative Problem 3-2 in Chapter 3, has posedsome questions about yields and interest rates that she wants answered. Your boss at Balik and Kieferhas asked you to answer the following questions for Ms. Delatorre.1. Ms. Delatorre mentioned that she purchased a stock one year ago for $250 per share, and that the stockhas a current market value equal to $240. She knows she received a dividend payment equal to $25, butshe doesn't know what rate of return she earned on her investment. Help Ms. Delatorre by showing herhow to compute the rate of return on her investment.2. What do you call the price that a borrower must pay for debt capital? What is the price of equity capital?What are the four fundamental factors that affect the cost of money, or the general level of interest rates, inthe economy?3. Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturityrisk premium (MRP). Which of these premiums is included when determining the interest rate on (1)short-term U.S. Treasury securities, (2) long-term U.S. Treasury securities, (3) short-term corporatesecurities, and (4) long-term corporate securities? Explain how the premiums would vary over time andamong the different securities.4. What is the term structure of interest rates? What is a yield curve? At any given time, how would the yieldcurve facing a given company such as IBM or Microsoft compare with the yield curve for U.S. Treasurysecurities? Draw a graph to illustrate your answer.5. Several theories have been advanced to explain the shape of the yield curve. The three major ones are themarket segmentation theory, the liquidity preference theory, and the expectations theory. Briefly describeeach of these theories. Do economists regard one as being &#34;true&#34;?

Accepted Answer

Rate of return is a measure of the profit or loss on an investment, expressed as a percentage of the…